"Last week’s increase in mortgage rates prompted a pullback in application activity," said Joel Kan, MBA’s deputy chief economist. "With more first-time homebuyers in the market, we continue to see increased sensitivity to rate changes."
Demand for refinancing also continued to plunge last week, tumbling another 6%, according to the survey. Compared with the same time last year, refinance applications are down a stunning 56%."Rates remained more than a full percentage point above the same week a year ago," Kan said. "This leaves very little refinance incentive for most homeowners."
The interest rate-sensitive housing market has cooled rapidly in the wake of the Federal Reserve's aggressive tightening campaign.
Policymakers already lifted the benchmark federal funds rate nine consecutive times and have signaled that a 10th increase is on the table at their May meeting amid signs of underlying inflationary pressures within the economy.
For months, higher mortgage rates have dampened consumer demand and brought down home prices. As rates have slowly fallen from a peak of 7%, the housing market has shown early signs of stirring back to life.
However, the return to lower mortgage rates has not been smooth. In fact, rates moved significantly higher to start the week, according to a separate survey from Mortgage News Daily, with the average rate on the popular 30-year mortgage for homes sold for $726,200 or less climbing to 6.43% from 6.30%.
For homes sold over $726,200, the average rate for the 30-year was 6.28%.
Those rates remain significantly higher than just one year ago, when rates hovered around 5%.
Past 10 days have been wild:
— Capital One shut off all dealer floorplans (aka inventory lines of credit)
— USA Auto Sales shut down 39 dealerships after losing its Ally floor plan
— Wells fargo laid-off all its junior Auto loan underwriters and capped future loans
Capital One has indeed decided to completely get out of the “floor plan financing” business…
As first reported by Twitter user CarDealershipGuy and now confirmed by Automotive News reports, Capital One is out of the dealer “floor plan financing” business, and while I realize this may not sound like the sexiest of topics, it could have some interesting effects on the car market. In case you think of homes when you think of the term “floor plan,” allow me to introduce the way dealers are able to hold massive inventory.
This is a really big deal.
A lot of dealers will simply not be able to operate without such financing.
Which brings us to the second point in the tweet. According to the official website of U.S. Auto Sales, they have “temporarily closed” all 39 of their dealerships…
Attention U.S. Auto Customers. We have temporarily closed our dealerships and are working on a solution to re-open them as soon as possible. But don’t worry, we aren’t going anywhere! U.S. Auto’s affiliated loan servicing company (USASF Servicing LLC) is still open to accept your payments and assist in servicing your account. Please continue to make your payments as scheduled and reach out to us with any account questions.
Hopefully U.S. Auto Sales will be able to secure another source of floor plan financing, but that may not be easy in this environment.
Another major chain, American Car Center, suddenly shut down more than 40 dealerships in February and has now filed for Chapter 7 bankruptcy…
American Car Center, the Memphis-based used car dealer which suddenly closed all locations in February, has officially filed for bankruptcy in a Delaware court.
According to federal court records, the company, also known as RAC Dealership, LLC, filed for Chapter 7 bankruptcy in the Delaware Bankruptcy Court on March 14.
Sadly, this is probably just the beginning.
A lot more dealerships are likely to go belly up as we get deeper into this economic downturn.
And as economic conditions deteriorate, financial institutions are likely to get even tighter with their money.
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